Empire Corporation is a profitable manufacturing concern with $750,000 of E&P. It is owned in equal shares by Edward and Sally, husband and wife. Both individuals are actively involved in the business. Consider the following independent events: (Click the icon to view the events.) Requirement Determine the tax consequences of each independent event. (For events with no constructive dividend and/or no effect on the corporation, leave the amount box empty, do not enter a zero.) ..... Effect on owner Effect on corporation More Info Event Constructive dividend Amount of dividend Effect Amount a a. In reviewing a prior year tax return for Empire, the IRS determines that the $450,000 of salary and bonuses paid to Sally is unreasonable and that reasonable compensation is $120,000 b. Empire loaned Edward $510,000 over the past three years. None of the money has been repaid. Edward does not pay interest on the loans. c. Empire sells a building to Sally for $160,000 in cash. The property has an adjusted basis of $90,000 and is subject to a $30,000 mortgage, which Sally assumes. The FMV of the building is $400,000. d. Edward leases a warehouse to Empire for $55,000 per year. According to an IRS auditor, similar warehouses can be leased for $20,000 per year. e. Sally sells to Empire for $430,000 land on which Empire intends to build a factory According to a recent appraisal, the FMV of the land is $310,000. f. The corporation owns an airplane that it uses to fly executives to business meetings When the airplane is not being used for business, Edward and Sally use it to travel to their ranch in Idaho for short vacations. The approximate cost of their trips to the ranch in the current year is $12,000. Print Done Empire Corporation is a profitable manufacturing concern with $750,000 of E&P. It is owned in equal shares by Edward and Sally, husband and wife. Both individuals are actively involved in the business. Consider the following independent events: (Click the icon to view the events.) Requirement Determine the tax consequences of each independent event. (For events with no constructive dividend and/or no effect on the corporation, leave the amount box empty, do not enter a zero.) ..... Effect on owner Effect on corporation More Info Event Constructive dividend Amount of dividend Effect Amount a a. In reviewing a prior year tax return for Empire, the IRS determines that the $450,000 of salary and bonuses paid to Sally is unreasonable and that reasonable compensation is $120,000 b. Empire loaned Edward $510,000 over the past three years. None of the money has been repaid. Edward does not pay interest on the loans. c. Empire sells a building to Sally for $160,000 in cash. The property has an adjusted basis of $90,000 and is subject to a $30,000 mortgage, which Sally assumes. The FMV of the building is $400,000. d. Edward leases a warehouse to Empire for $55,000 per year. According to an IRS auditor, similar warehouses can be leased for $20,000 per year. e. Sally sells to Empire for $430,000 land on which Empire intends to build a factory According to a recent appraisal, the FMV of the land is $310,000. f. The corporation owns an airplane that it uses to fly executives to business meetings When the airplane is not being used for business, Edward and Sally use it to travel to their ranch in Idaho for short vacations. The approximate cost of their trips to the ranch in the current year is $12,000. Print Done